Oct. 8 (Bloomberg) -- Larsen & Toubro Ltd., India’s biggest engineering company, raised $600 million selling shares and bonds to institutional investors to fund expansion in its emerging businesses, including railways and defense.

The company sold $400 million of shares and $200 million of foreign currency convertible debentures, Executive Vice President R. Shankar Raman said today in an interview. The shares were priced at a 1 percent discount to yesterday’s close and the bonds at a 15 percent premium, he said.

Larsen is adding railways, defense and shipbuilding to its main business of constructing factories, roads and bridges to benefit from a government plan to spend $500 billion by 2012 to augment India’s infrastructure. Prime Minister Manmohan Singh’s administration is boosting its current defense spending by 15 percent to 868.8 billion rupees after terror attacks last year.

“Infrastructure companies need continuous funds,” said Amitabh Chakraborty, Mumbai-based president for equity at Religare Securities Ltd. “Those like Larsen with aspirations of big order-books need lot of funds to finance projects.”

Larsen shares fell 1.6 percent to 1,650.80 rupees at the close of trading today in Mumbai. The shares have more than doubled this year, compared with a 75 percent gain in the Bombay Stock Exchange’s key Sensitive Index.

Citigroup Inc. helped the company raise the funds.

Fundraising

Indian companies have raised more than 279 billion rupees ($6 billion) this financial year from qualified institutional placements, or QIPs, according to data on the Bloomberg. They had raised about 42 billion rupees in the first quarter.

“We will use this money to fund our growth projects,” Raman said today. “We have expansions planned in railways, defense and other businesses that are capital intensive.”

Larsen will form a defense venture with European Aeronautic Defence & Space Co. to design, develop and make radar, military avionics, electronic warfare, and mobile systems, the companies said on May 5. The venture, subject to India government approval, will have an initial investment of 1 billion rupees and be ready to receive contracts by early next year.

In July, Larsen announced it will build a 10.47 billion rupee wheel factory for the Indian Railways. The factory, to be located in the eastern state of Bihar, will have a production capacity of 100,000 wheels a year and be completed in two years.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

Last Updated: October 8, 2009 06:38 EDT